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Utility

Suburban Smiles May Turn to Frowns

The August 22 New York State Supreme Court decision that the Payroll Mobility Tax (PMT) passed by the legislature in 2009 to aid the Metropolitan Transportation Authority violates the state constitution on the grounds that it “does not serve a substantial state interest” put smiles on the faces of suburban political leaders.[1] Many in the seven suburban counties subject to the tax opposed it from the start, believing they receive little or no benefit in exchange and that more of the burden of financing the MTA should be placed on residents and employers in New York City.

The MTA has appealed the decision, and many legal experts think it likely will be overturned. But the smiles of the suburbanites may turn to frowns even if the decision is sustained on appeal because the revenue lost from the PMT could be made up in a way that is far more burdensome to suburban commuters.

The PMT is a tax of 34 cents on each $100 of payroll for most employers in the Metropolitan Commuter Transportation District (MCTD), defined as New York City and the counties of Nassau, Suffolk, Dutchess, Orange, Putnam, Rockland and Westchester. The PMT raised more than $1.4 billion for the MTA in 2011.[2] Of that total an estimated 70 percent or $987 million was from employers in New York City. The other $428 million came from employers in Nassau and Suffolk ($249 million or 17.6 percent) and from employers in the five counties north of New York City ($178 million or 12.7 percent).[3]

Not collecting the PMT in the suburban counties would leave a $459 million hole in the MTA budget in 2012.[4] Since the forgone money came from the suburbs, the MTA could reasonably look to those counties to make up the gap by either paying more in another way or taking cuts in services -- to the Long Island Rail Road (LIRR) and Metro-North Railroad (MNR).

Both railroads are heavily subsidized by regional and statewide taxes in addition to the PMT. In 2012 the LIRR will cost more than $1.6 billion to operate and MNR will have expenses surpassing $1.3 billion. Passenger fares are expected to cover only about 36 percent of the LIRR budget and less than 46 percent of the MNR budget.[5] Relatively small amounts come from Connecticut for MNR and from advertising and other “earned” revenue sources. The bulk of both railroads’ costs are covered by taxes like the PMT appropriated through the State budget.

What if the LIRR and MNR had to deal with the $459 million in lost PMT revenue? This would mean expenditure cuts of about 16 percent for the LIRR and 15 percent for the MNR. In rough terms, that is the equivalent of ending service one day per week. If offset by higher fares, the lost sums would require a 46 percent increase on the LIRR and a 32 percent increase on the MNR. The price of a ticket to Ronkonkoma, the largest station by ridership on Long Island, would increase from $334 a month to $488; a 32 percent change in the price of a monthly ticket from White Plains to Grand Central Terminal on MNR would increase the price from $229 to $302. These changes do not include already planned fare hikes of 7.5 percent for all MTA riders for 2013, bringing the monthly fare to more than $513 for Ronkonkoma and $319 for White Plains. Neither the service cuts nor the fare hikes would make riders happy.

As is often the case, people should be careful about what they wish for; the theory of an unconstitutional PMT could be far less pleasant in reality. There is no such thing as a free lunch or a free train ride; the LIRR and the MNR must be paid for in one way or another, and the PMT may be less painful than many other options.

[3] Percent distributions provided by the New York State Division of the Budget based on February 2010 data. Current percentage allocations may be different due to legislated adjustments in the tax on small businesses and private and parochial schools.

[4] Figure based on the portion of the projected 2012 Payroll Mobility Tax attributable to counties outside New York City using Division of the Budget percentage allocations. Source: Metropolitan Transportation Authority, July Financial Plan 2013-2016, Volume 2, Section II, July 2012.